An investment project requires an initial outlay of $100,000, and is expected to generate
annual cash inflows of $28,000 for the next 5 years. The cost of capital is 12 percent.
Determine the internal rate of return for the project (to the nearest tenth of one percent).
A.12.0%
B.12.6%
C.3.6%
D.12.4%
The ____value of an imbedded annuity is moved back in time as an amount.
A.intrinsic
B.future
C.present
D.assumed
A merger between a tire manufacturer and an automobile manufacturer is an example
of:
A.a horizontal merger.
B.a vertical merger.
C.a product extension merger.
D.None of the above
The cost of retained earnings differs from the cost of new equity due to:
A.flotation costs.
B.dividends.
C.capital gains yields.
D.Both a & c
E.All of the above
The sunk costs associated with an asset to be replaced should be:
A.ignored in the valuation of an capital budgeting project.
B.included as an initial period cash outflow in the evaluation of a capital budgeting
project.
C.included as a project termination cash outflow in the evaluation of a capital budgeting
project.
D.None of the above
Riordan Services Inc. just issued a 2-year bond at a 15% interest rate. Riordan’s default
risk premium has been estimated at 2.5%, its liquidity risk premium is about 2%, and its
maturity risk premium is 3%. Inflation is expected to be 5% in the bond’s first year and
4% in its second year. What is the implied pure rate of interest?
A.3%
B.4%
C.5%
D.6%
Shunt Technology will spend $800,000 on a piece of equipment that will manufacture
fine wire for the electronics industries. The shipping and installation charges will be
$240,000 and net working capital will increase $48,000. The equipment will replace an
existing machine that has a salvage value of $75,000 and a book value of $125,000. If
Shunt has a current marginal tax rate of 34 percent, what is the net investment?
A.$1,030,000
B.$1,163,000
C.$1,033,000
D.$996,000
Which financial institution is not involved in the indirect method of financial
intermediation?
A.Banks
B.Investment bankers
C.Mutual funds
D.Pension funds
In the MM model, the mix of debt and equity that minimizes the cost of capital is the:
A.optimal corporate structure.
B.target financial structure.
C.optimal capital structure.
D.optimal degree of combined leverage.
What is the effective rate on an 8% loan subject to a 10% minimum compensating
balance
A.10.0%
B.8.0%
C.8.89%
D.None of the above
Which of the following is not a major reason for developing a business plan?
A.The process helps pull the management team together.
B.The completed plan is a vehicle for communicating managements vision to others.
C.Planning enables management to defend itself against criticism from disgruntled
stockholders.
D.The finished plan serves as a roadmap for running the business.